By Jean Chatzky with Arielle McGowen
It’s already common to see overdraft fees of $35 or more if you overspend your account. Additionally, you’re charged interest on the money you’ve borrowed to cover your purchase. Beware of tiered overdraft fees, in which fees rise with each successive overdraft. Nine out of the 16 largest banks also have sustained overdraft fees, which means if you don’t pay off the overdraft amount and the fee in full, an additional fee gets tacked on.
These fees are particularly annoying because banks use a bookkeeping method called stacking the debt. They process transactions on a given day not in the order you make them but by the largest first. If the largest causes an overdraft, you’ll incur fees on all of the smaller ones. Ouch.
For extra protection, Greg advises linking your savings and checking accounts so you can borrow from yourself, not from the bank. At most banks, you can opt out of overdraft protection (many banks enroll you automatically). Your account may be denied if you have insufficient funds—potentially embarrassing, but not costly.